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I have listened on many occasions to the Leader of the Opposition and to the shadow Chancellor, and I have come to the conclusion that they do not understand what is happening in the world economy. I do not think that the Leader of the Opposition realises that while last year, and in the last few months, the problem has been inflation—we have had inflation combined with a credit crunch—in the next year, the problem is deflation and the problem— [Interruption.] Inflation close to zero.
The answer is, as everybody has said at this international conference, that we combine monetary policy with fiscal action so that we have the best impact on growth in the economy. The Conservative party seems to be the only party that is now standing against what is a consensus developing across Europe and across the world: unless we take the fiscal action that is necessary now, and help businesses and families now, we will be undoing any benefit that can come from monetary policy and cuts in interest rates. I hope that the Conservatives will think again.
The right hon. Gentleman sometimes quotes Canada. The Prime Minister of Canada has just said, at the end of the meeting— [Interruption.] The Prime Minister— [Interruption.]
Mr. Speaker: Order. I expect better from you, Mr. Soames, than shouting across the Chamber. [Interruption.] Order. The hon. Gentleman should be setting a good example.
The Prime Minister: The Prime Minister of Canada said:
“There’s a view coming out of this meeting, very strongly I can tell you... that monetary policy alone will not be sufficient to take the global economy through this crisis. There will have to be fiscal action, and there will have to be additional fiscal action.”
That is what almost every country is now saying as a result of what is happening around the world. It is the Conservative party that is out of touch. Then, there is Mr. Dominique Strauss-Kahn, the managing director of the International Monetary Fund, who said:
“What countries do you think should have it?”—
“I want to answer your question candidly. Everywhere where it’s possible. Everywhere where you have some room concerning debt sustainability. Everywhere where inflation is low enough not to risk having some kind of return of inflation, this effort has to be made.”
Let us also be clear about debt comparisons: France 55 per cent. of GDP; Germany 56 per cent.; Italy 101 per cent.; Japan 94 per cent.; the USA 46 per cent; the United Kingdom 37 per cent.
The Opposition have been wrong on every single matter concerning this downturn: they were wrong to oppose the nationalisation of Northern Rock; they were wrong to say that we should not act against shares speculation; they were wrong to say that we could not cut interest rates because the fiscal position was in a bad state; they were wrong to say on Sunday that we could not persuade the rest of the world of the need for a fiscal stimulus; they were wrong with their fuel duty stabiliser that would put fuel duty up by 5p now; they were wrong with the employment policy last week, which was dismissed by the Small Business Federation
not as an incentive to employment but, after spending £2.5 billion, as a disincentive to employment. They have been wrong on every single occasion when they have turned their minds to economic policy. They are not only outside the national consensus, but outside the international consensus as well.
What, then, is the answer of the Leader of the Opposition? It is to bring back the right hon. Member for West Dorset (Mr. Letwin). That is what he means by “time for a change”. Everyone is tested by the economic circumstances we face: Governments are tested and Oppositions are tested. This Opposition have been tested and found wanting.
Mr. Nick Clegg (Sheffield, Hallam) (LD): I would like to add my own expressions of sympathy and condolence to the— [Interruption.]
Mr. Speaker: Order. Mr. Luff, you should calm down— [Interruption.] Order. The hon. Gentleman should calm himself, or is he telling me that I am not chairing the proceedings properly? I do not think that he would want to do that.
Mr. Clegg: I would like to add my own expressions of sympathy and condolence to the family and friends of Colour Sergeant Dura and Marines Neil Dunstan and Robert McKibben who tragically lost their lives in Afghanistan this week.
I thank the Prime Minister for his statement. I, too, think that it was good that this was a G20 summit, which included new powers such as India, China, Brazil and others. I hope that that will be a precedent for the future because global governance can no longer be a stitch-up of the old powers alone.
I also strongly agree with the Prime Minister’s words on the danger of protectionism. The lesson from the 1930s is indeed that narrow nationalism and trade barriers will only make matters worse. Speaking as one who was at the inception of the Doha development round in 2001, I feel strongly that we must seek to trade our way out of this recession.
British exports, of course, will be boosted after the recent fall in the value of the pound after a long period of over-valuation. In my opinion, the shadow Chancellor was well within his own rights to talk about the falling pound, even if he made almost no sense at all. Does the Prime Minister agree that this sudden desire for currency stability is a bizarre U-turn from a party that once referred to the euro as a “toilet paper currency”?
The Prime Minister spoke a great deal today about a fiscal stimulus, and it is rumoured that he wants to borrow money for a temporary tax rebate. In my view, it is right to give money back to people on low and middle incomes who are more likely to spend some of that money, but instead of borrowing for a one-off tax cut, the Prime Minister could pay for a big permanent tax cut by ending unfair loopholes for the very wealthy. Would not that be fair? The right thing to borrow for is not short-term cash bribes, but long-term capital investment in infrastructure which the country needs in any case. Does he agree that extra borrowing can be justified only to fund green energy, sustainable transport and the homes we need for a sustainable economic recovery?
The Prime Minister still seems incapable of differentiating between good public spending and bad public spending. Why in the teeth of this recession, does he still want to waste £13 billion of the public’s money on an NHS computer system that will not work, £12 billion of it on a surveillance database that no one wants and £5 billion on ID cards that no one needs?
I know that in the past the Prime Minister has struggled to distinguish between cutting public spending and redirecting it as we want, but does he now accept that my party’s plans to redirect wasteful spending to things that people really need in a recession—such as homes, child care, education, training and fairer taxes—are the right thing to do?
The Prime Minister has spent several weeks jetting around the world. Will he now focus on three key steps that will help people here at home: permanent fairer taxes, borrowing only for long-term investment, and redirecting public spending towards the things that people really need in a recession?
The Prime Minister: The first thing that I should say to the right hon. Gentleman is that it is important that we do not cut capital investment at this time. The capital investment that we are making in homes, education, the health service and the environmental technologies of this country is capital investment that we will continue. I hope that the right hon. Gentleman will be able to support us when we say that it would be totally wrong, at a time when we are preparing for the next stage of the world economy, to cut capital investment in those areas.
I must also say to the right hon. Gentleman that we have removed tax loopholes in every Budget since 1997, including the loopholes removed by the Chancellor in the last Budget. I see no evidence from my reading of the Liberal Democrats’ policy document that they can find the billions that they say are to be found in the cutting of tax loopholes, and I believe that, when subjected to rigorous examination, their policy once again does not stand up.
I have to tell the right hon. Gentleman that if he cuts public expenditure and says that that constitutes savings, as he is doing, he is still cutting public expenditure by £20 billion.
Mr. Adrian Bailey (West Bromwich, West) (Lab/Co-op): I welcome my right hon. Friend’s statement, and particularly welcome the international backing for the actions that he has taken. I think we all recognise that he has a difficult task to perform in ensuring that sustained public expenditure maintains our economy at an appropriate level and, at the same time, helps hard-working families. Can he assure me that he will resist the siren voices on the Opposition Benches calling for the introduction of a fuel duty stabiliser?
The Prime Minister: In the heat of the summer, to gain a bit of publicity, the shadow Chancellor announced that he had a fuel duty stabiliser. The problem with the fuel duty stabiliser is that the minute petrol prices fell to 97p a litre, the right hon. Gentleman would have been bound to put the price up by 5p a litre. I do not think that, even with his bluster, he can deny that that is the case.
This is just one of the Conservative ideas that were launched in the morning, were found wanting in the afternoon, and are never talked about now. The right
hon. Gentleman had exactly the same problem with his proposed employment measures last week. His proposal to spend £2.5 billion on employment, one of the biggest outlays of public expenditure, was rejected by the Federation of Small Businesses as a disincentive. I think that the Conservatives will have to go back to the drawing board, but I do not think that the right hon. Member for West Dorset (Mr. Letwin), who lost them the 2001 and 2005 elections, will be of much help to them.
Mr. Kenneth Clarke (Rushcliffe) (Con): Will the Prime Minister not confess that he went to the summit to obtain cover for the short-term borrowing on which he intends to embark as much for electoral as for economic reasons? Does he not accept that the summit statement stresses debt sustainability, which he noticeably omitted from all his own statements, and that if he goes ahead with adding to the level of debt that will, I hope, be revealed in full next Monday, he will merely build up impossible problems for the Government who must follow, and must sort out the mess that he has created over the 10 years of his stewardship?
The Prime Minister: When the right hon. and learned Gentleman was Chancellor, debt was 44 per cent. of GDP. At the moment, according to the IMF, it is 37 per cent. of GDP. That is debt sustainability: it means that we can build on a level of debt that is lower than the 1997 level to take the action that is necessary.
I went to the summit because, unlike the Conservatives, I believe that co-ordinated international action is possible. I believe that we can work with the rest of Europe and the rest of the world to take specific and decisive action to deal with the financial crisis, and I believe that we can work together not just on financial sector reform but on fiscal policy.
Despite saying a few weeks ago that borrowing was necessary, the Leader of the Opposition has today set his face against the fiscal stimulus that is necessary in this economy and other economies. He will find himself outnumbered by every major country in the world. He will find that America will have a fiscal stimulus in the next few months; he will find that the rest of the European Union will also agree to a fiscal stimulus; and he will find that the rest of the world will want that to happen. But if the Conservative party has not woken up to the fact that we have near-to-zero inflation coming up next year, and that fiscal stimulus is the necessary way in which to get around it, I do not think that the party will ever begin to understand the modern economy.
Frank Dobson (Holborn and St. Pancras) (Lab): Will my right hon. Friend stick to the policies he has been outlining and give the fiscal stimulus that is necessary, and ignore the juvenile approach of those on the Tory Front Bench, whose Members apparently believe that borrowing is all right for bailing out bankers, but that when it is intended to make sure that people and small businesses all over the country have jobs and stay in business it is not acceptable?
The Prime Minister:
Yes, if we had taken the Conservative party’s advice, the price of petrol would be going up by 5p per litre. It cannot deny that; that is the policy it announced a few months ago. Is this the right time for us to be increasing the price of petrol by imposing a
5p per litre rise? That is the Opposition’s policy, and it would harm people at this time. The Conservatives seem to be unable to understand that if inflation is falling substantially and there is a downturn and a credit crunch, we need the power of Government action to give a fiscal stimulus to the economy. I suspect that, under the influence of the right hon. Member for West Dorset, the Conservatives are lurching back to a monetarist policy such as that which failed in the past.
Angus Robertson (Moray) (SNP): I welcome the G20 declaration, especially the section stating that its
“work will be guided by a shared belief”
“economic growth, employment, and poverty reduction.”
Given that tens of thousands of people employed in the financial sector around the UK are fearing for their jobs, not least in HBOS, is the Prime Minister confident that mistakes in regulation are not now being repeated with the abandonment of competition rules?
The Prime Minister: The hon. Gentleman opposes the action we took on competition rules in relation to HBOS and Lloyds TSB, but if we had not taken that action HBOS would have collapsed as a banking institution. The idea that the Scottish National party is putting around Scotland about HBOS being basically a healthy institution that came under fire because of London speculators is complete nonsense. It had a bad business model and it lost a great deal of money because of that bad business model. That has to be corrected, which is why Lloyds TSB has been given the support of Government with the share issue for the new HBOS-Lloyds TSB. The hon. Gentleman should stop peddling myths around Scotland about the viability of HBOS in its present form.
Mr. Peter Hain (Neath) (Lab): Will the Prime Minister ignore the bumbling opportunism of “boy George” and the Conservatives, and instead learn the lessons from Keynes that they have clearly failed to learn, by recognising that to avoid a 1930s-type slump it is necessary to borrow to invest and to cut taxes of the kind he is advocating? The alternative advocated by the Conservatives would result in a prolonged slump in Britain.
The Prime Minister: I fear that the shadow Chancellor said on Sunday:
“Gordon Brown told us before going to Washington that it was all about getting a global agreement for a fiscal stimulus package. He has not done that.”
How out of touch are the Opposition.
Sir John Butterfill (Bournemouth, West) (Con): Does the right hon. Gentleman agree that the trigger for all of this was a catastrophic failure of regulation of the financial services sector in the United States, but does he also agree that as London had become the world financial centre, it had an even greater need for competent regulation of the financial sector, and that the regulatory regime he put in place has failed abysmally?
The Prime Minister:
First, I am pleased that the hon. Gentleman has acknowledged what the Leader of the Opposition has failed to understand: that the problems started in the United States of America. As long as the
Conservatives do not understand how the problem started, they will never begin to understand how to solve it. When even the Americans agree that the problem started in America, it ill befits the Leader of the Opposition to try to mislead people about how the problem started. On regulation, we created the Financial Services Authority; we brought together all the different regulators to do so. The only policy the Conservative party has put forward on regulation in the last year or two is a policy to deregulate pensions, mortgages and the financial system. It should be ashamed of that policy.
Mr. Iain Duncan Smith (Chingford and Woodford Green) (Con): The Prime Minister may recall that when he was in opposition he used to say that the strength of a currency was a reflection of the strength of its economy. Notwithstanding the fact that the world is going into recession, does he not think that the precipitant fall in sterling is down to the fact that the international community believes that we enter this recession in a worse state than almost anybody else?
The Prime Minister: First, I think that the former Leader of the Opposition should think twice about what he says about the currency at this stage. I have never, whether in opposition or government, given a running commentary on the currency, as the Opposition seem to want to do. I think that it is highly irresponsible for them to do that in the present circumstances. May I say that, in 1989, Lady Thatcher complained —[Interruption.] They have no respect, even when it comes to listening to the words of Lady Thatcher now. She complained of people
“trying to help the speculators and talks sterling down in the most unBritish way.”—[ Official Report, 15 June 1989; Vol. 154, c. 1119.]
Mr. Kevin Barron (Rother Valley) (Lab): Can my right hon. Friend assure the House that any fiscal action he takes in the next few weeks will be to fight the problems that our constituents face, whether on homes and mortgages or in the workplace, and not fight the next general election?
The Prime Minister: We are trying to help people in difficult situations with their mortgages. That is why we are bringing in changes from 1 January to help people who are unemployed pay for their mortgages. We are trying to speed up social housing provision, so that we can replace the loss of private house building in the economy. On jobs, my right hon. Friend will note that we have enhanced the new deal that is available to help people moving from one job to another, and we have enhanced the ability to launch a rapid response in communities that are facing redundancies—that is how to help people in difficult situations. The way ahead is not to abolish the new deal, as the Opposition would do, but to enhance it.
Dan Rogerson (North Cornwall) (LD): As the Prime Minister considers his approach to dealing with all these issues, will he instruct Her Majesty’s Revenue and Customs to be as sympathetic as possible to those employers who are temporarily experiencing problems with cash flow, in the hope that jobs that will be crucial to the future recovery of the economy can be safeguarded for the future?
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